Trump's China Tariff Wrath Presents Big Risk for US Tech Companies

WASHINGTON, DC - JUNE 19: Apple CEO Tim Cook listens to U.S. President Donald Trump deliver opening remarks during a meeting of the American Technology Council in the State Dining Room of the White House June 19, 2017 in Washington, DC. (Photo by Chip Somodevilla/Getty Images)

All companies are treated equally. Or maybe, not so much, in the Trump era.

Apple dodged a bullet in the latest round of President Trump’s tariffs on trade with China. But the bigger question is, just how vulnerable is big tech to Trump’s erratic tariff and trade policy with the world’s biggest tech partner?

The US announced new tariffs on hundreds of consumer goods imported from China -- yet Apple seems to have escaped from the crosshairs of what would have amounted to a big tax on its products.

But for some reason, there was no tax on Apple’s Smartwatch, AirPod headphones or its HomePod smart speaker. Apple, armed with its cavalry of lobbyists, successfully wooed the Trump administration away from slamming its products with surcharges.

BEIJING, CHINA - NOVEMBER 09: China President Xi Jinping and wife Peng Liyuan welcome US President Donald Trump and wife Melania come to China for state visit on 9th November, 2017 in Beijing, China.(Photo by TPG/Getty Images)

So what exactly is the Trump administration’s big tech policy, when it comes to China? And how can Google, Amazon, Facebook and other massive US tech companies avoid being collateral damage the next time the President hurls a trade grenade into China?

One stated goal of the Trump administration is to prevail upon Apple and other big tech manufacturers to build their products here in the U.S. Apple CEO Tim Cook has said that while iPhones are assembled in China, many parts, including glass and chips, are made in the US.

Apple executives and analysts insist that the negative impact on consumer pricing makes manufacturing in the U.S. not a smart business decision. While Trump disagrees, and persists in lobbying and more recently waving vague threats at Silicon Valley, tech companies like Apple have been steadfast in lobbying right back at him..

Before the latest round of Trump tariffs on China, the CEOs of Apple and Cisco made very public statements, surely crafted by their advisers and lobbyists, insisting that if President Trump moved forward with $200 billion more in tariffs against China, that their companies and their customers would suffer.

But Trump went ahead anyway with a 10 percent tariff on $200 billion worth of Chinese imports. That rate is set to increase to 25 percent by the end of the year.

None of this is good for globalization. This week, , the IMF announced it is ratcheting down its previous optimism on growth. The International Monetary Fund reduced its forecast for the global economy in 2018 and 2019 to 3.7 percent. That’s 0.2 percent below its prior estimate for both years. The IMF cites “weaker growth in advanced economies, rising trade tensions and higher oil prices.”

Apple’s not the only company that’s been lobbying the Trump administration to keep it off the tariff list. But few companies have such clout, and many US semiconductor companies are far more financially vulnerable to the impact of Trump’s Chinese tariffs.

Earlier this year, Wall Street analyst firm Jeffries estimated that business with China represented 23%, or $105 billion, for a group of 16 US tech companies that included Apple and Intel. Semiconductor companies have even greater exposure.

Micron Technology’s CFO David Zinser has said the U.S. chip company’s gross margins would “suffer due to President Trump’s latest round of tariffs on Chinese imports.” Just over 50 percent of Micron’s revenues come from China.

And, while Apple does a tremendous amount of business in China, there are plenty of US-based semiconductor companies, which have very high revenue exposure to the Chinese market.

I checked with one smaller U.S.-based chip company called Skyworks Solutions for their perspective of the latest round of tariffs on US products sold in China. Skyworks Solutions makes chips that are used in mobile phones around the world.

BEIJING, CHINA - 2018/09/26: In Apple store located at Sanlitun, Chinese customers showed great interest in new iPhone XS, though iPhone XS was regarded as the most expensive iPhone in history. (Photo by Zhang Peng/LightRocket via Getty Images)

“The vast majority of our sales into China (with third parties like Foxconn) support major US and European mobile carriers. As you know, China serves as a production hub to global OEMs who elect to aggregate and assemble their products via contract manufacturers for shipments worldwide,” said Tami Segmaier, spokesperson for Skyworks Solutions.

“We estimate that our end market sales to China are on the order of 30% of Skyworks total revenue,” Stegmaier added.

For US chip companies selling 30 percent, 40 percent or more than 50 percent of their products into China, there are considerable risks. Trump’s China tariff policy is a high stakes gamble, which is having material negative financial impact on American tech companies, and unless the policy is reversed,US companies, employees and customers may be the victims.

San Francisco-based Mark Berniker is a freelance journalist, producer and consultant and co-founder of Bootstrap Media, LLC, a documentary video production and media consulting company.